Canadian investors stand by ESG despite ‘greenhushing’ trend

Large institutional investors employing environmental, social and governance investing strategies in the United States are going quiet, hoping to avoid attention from anti-ESG policymakers. As this lurch to silence plays out, it’s not clear whether these investors are abandoning ESG or just not talking about it.

In Canada, a new report suggests the same forces are at work north of the border. However, unlike the uncertainty in the United States, the report concludes that ESG integration is “firmly entrenched” in Canadian investment management, even as investors adopt a lower-profile stance on their ESG activities. “Over the last 12 months, we’ve seen so many asset managers being attacked in the U.S., or their business being put at risk,” says Milla Craig, CEO of Montreal-based sustainability consulting firm Millani, which produced the report.

Canadian asset managers are not immune to these attacks, Craig says, especially if they have U.S. operations. In response, asset managers and owners are shifting attention from external communication of ESG themes to focusing on internal ESG strategy, according to Craig.

“This is very different from anything we have seen,” she says in an interview, referring to previous surveys conducted every six months since December 2022. Pushed by climate protests, many of these investors have adopted high-profile net-zero targets and other ESG commitments. Yet the protests have continued, alongside the rise of the anti-ESG political movement in the United States.

I don’t see investors backing off. There is infrastructure there today that wasn’t there seven years ago, and I think that’s a big difference in the market.

– Milla Craig, CEO, Millani

In response to these converging lines of criticism and opposition, investors are recalibrating, says Craig. They are maintaining their ESG policies but developing corporate strategies to shield them from attacks from both the left and right.

“These organizations have been integrating ESG, but they’re now going to another depth to ensure they cannot be called out for not meeting their [ESG] commitments,” Craig says. All but two of 27 institutions surveyed in December 2024 remain committed to ESG integration, the report states. The respondents mainly included asset managers, alongside a smaller sample of asset owners such as foundations and pension funds.

A “striking shift” toward ESG integration

As a tool, ESG integration is used by sustainability-focused asset managers offering green-labelled funds, for example. But it is also used by many conventional investors wishing to incorporate ESG factors into their portfolios as a way of identifying and managing related risks from things like litigation or the energy transition.

When it comes to climate, “investors are shifting from simply assessing if organizations have climate targets to analyzing and expressing a need for clear and credible transition plans, as well as the capital allocations needed to successfully execute such plans,” the report states.

When asked to rank the most important ESG topics, 67% of investors ranked climate first, biodiversity third at 44% and Indigenous reconciliation fourth at 30%. Internal ESG trailed in previous surveys, but in December 2024 it ranked second at 48%, a result the report calls “a striking shift.” Many investors are now spending time and resources to integrate tools like corporate climate scenario analysis – for assessing the potential impacts of climate change on a particular business – into their own investment management operations, it states.

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While banks and asset managers face a regulatory retreat in the United States – including the Securities and Exchange Commission’s decision to pause its legal defence of a recent corporate climate-disclosure rule – Millani found that Canadian investors support measures to bolster ESG disclosure in Canada and want the regulatory tools to help them develop a more sophisticated understanding of ESG factors shaping their portfolio companies.

This support extends to climate-related risk-management and disclosure rules on banks and insurance companies put in place by the Office of the Superintendent of Financial Institutions. It also includes recommendations by the Canadian Sustainability Standards Board for corporate climate disclosure aligned with international standards. Investors also support action by the federal government to establish official guidelines for what constitutes green and transition investments, according to the report.

Are they greenhushing or simply retreating from accountability?

Millani’s contention that investors are standing firm behind ESG is at odds with a recent report from climate advocacy group Investors for Paris Compliance (I4PC), which looked at the climate performance of bank-owned asset managers, a large segment of the country’s investment industry. Released in January, the I4PC report shows that the asset-management arms of Canadian banks are lagging behind commercial lending arms on climate-risk disclosure, especially in reference to their financed emissions and how well these align with the banks’ net-zero targets.

The I4PC report also finds that most bank-owned asset managers are failing to set comprehensive transition strategies to align their portfolios with their parent banks’ net-zero commitments.

Craig acknowledges that asset managers are going into a period of “greenhushing,” and this carries some risk that they won’t be held accountable for failure to achieve climate or other ESG targets. But she doesn’t see evidence to date of a significant ESG pullback by Canadian asset managers. This is partly because asset owners like public pension funds have established ESG policies in the last decade that are pressuring asset managers to hold the line on ESG.

“From the study and my conversations, I don’t see investors backing off,” Craig says. “There is infrastructure there today that wasn’t there seven years ago, and I think that’s a big difference in the market.”

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).